### Question Description

Prepare a PowerPoint or Prezi Presentation to define the following terms, using graphs or equations to illustrate your answers where feasible.

- Risk in general; stand-alone risk; probability distribution and its relation to risk
- Expected rate of return, ^r
- Continuous probability distribution
- Standard deviation, σ; variance, σ2
- Risk aversion; realized rate of return, r
- Risk premium for Stock i, RPi; market risk premium, RPM
- Capital Asset Pricing Model (CAPM)
- Expected return on a portfolio, r^p; market portfolio
- Correlation as a concept; correlation coefficient, ρ
- Market risk; diversifiable risk; relevant risk
- Beta coefficient, b; average stock’s beta
- Security Market Line (SML); SML equation
- Slope of SML and its relationship to risk aversion
- Equilibrium; Efficient Markets Hypothesis (EMH); three forms of EMH
- Fama-French three-factor model
- Behavioral finance; herding; anchoring

**Business School Assignment Instructions**

The requirements below must be met for your paper to be accepted and graded:

Write between 750 – 1,250 words (approximately 3 – 5 pages) using Microsoft Word in APA style, see example below.

Use font size 12 and 1” margins.

Include cover page and reference page.

At least 80% of your paper must be original content/writing.

No more than 20% of your content/information may come from references.

Use at least three references from outside the course material; one reference must be from EBSCOhost. Text book, lectures, and other materials in the course may be used, but are not counted toward the three reference requirement.

Cite all reference material (data, dates, graphs, quotes, paraphrased words, values, etc.) in the paper and list on a reference page in APA style.

References must come from sources such as scholarly journals found in EBSCOhost or on Google Scholar, government websites and publications, reputable news media (e.g. CNN , The Wall Street Journal, The New York Times) websites and publications, etc. Sources such as Wikis, Yahoo Answers, eHow, blogs, etc. are not acceptable for academic writing.

Grading Criteria Assignments | Maximum Points |

Meets or exceeds established assignment criteria | 40 |

Demonstrates an understanding of lesson concepts | 20 |

Clearly presents well-reasoned ideas and concepts | 30 |

Uses proper mechanics, punctuation, sentence structure, and spelling. | 10 |

Total | 100 |

## Final Answer

Hello here are the files, if there are corrections youd like done kindly let me know am ready to work on them

Attached.

Running Head: RISKS AND RETURNS

Risks and Returns

Course

Professor’s Name

University

Date

2

RISKS AND RETURNS

Risks and Returns

Risk is defined as the potential to lose something that one considers valuable. In business, risk is

defined as the possibility that the value of an asset will not be returned or will be less than

expected. Standalone risk, on the other hand, means the uncertainty that is present in the

expected rate of return on an investment. The quantitative measures are taken usually reflect the

degree of uncertainty. Probability distribution and its relation to risk refer to charts and listings

that indicate all feasible outcomes, for example, the probability of an outcome, the probability

distribution or expected rates of returns.

The expected rate of return can be defined as the anticipated rate of return of an investment given

the current price and future cash incomes. If the investment is set at equilibrium then the

expected rate is equal to the required rate of return.

Continuous probability distribution is one that contains an infinite number of possibilities and is

graphed from −∞ and +∞

Variance is used in probability distribution. It is a measure of the gap between values in a

population. It measures the sum of squared values of how far each number in a distribution

deviates from the mean. Standard deviation, on the other hand, is defined as a measure of

dispersion of population data from the mean.

In business, risk aversion is defined as the actions that people do in order to reduce the

uncertainty in an investment or the hesitation that is present when people cannot agree because

the payoff is not as clear. On the other hand realized return means the payoffs that an investor

gets from an investment, it does not necessarily match the expected return.

RISKS AND RETURNS

3

Risk premium is the surplus returns that an investment in the stock market offers over a risk-free

rate. On the other hand market premium refers to the variation between the expected rate of

return on the market and the risk-free rate.

The capital asset pricing model is one that is used to determine the relationship between expected

return and a risk. It is mainly used in pricing risky securities. It is based on the notion that the

rate of return is equivalent to risk premium plus risk-free rate.

Expected return on a portfolio refers to the weighted average expected pay off of an individual

stock in a portfolio and the weights are only a fraction of the total portfolio. Market portfolio, on

the other hand, is a portfolio which consists of all stocks.

Correlation is considered a statistical measure that shows the extent to which two or more

variables fluctuate together. It is the tendency of two variables to move together. The correlation

coefficient, on the oth...

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